Insider Purchases & Buybacks: AEO By Jason Raznick RealMoney.com Contributor 2/8/2008 3:51 PM EST

American Eagle's (AEO) board has approved the repurchase of up to 30 million shares through 2010. The latest buyback authorization takes the total shares available for repurchase to 41.2 million. The teen apparel retailer had approximately 214 million shares outstanding as of Nov. 30 and has enough cash ($640 million) for the buyback.

The company definitely sees value in its shares and has already been aggressively buying back its stock. It repurchased 18.8 million shares in fiscal 2007 for about $438 million.

Of course, it cannot be ignored that American Eagle is facing a challenging retail market, with the recent holiday shopping season being the weakest in five years. The company has cut its fourth-quarter earnings projection to between 64 and 65 cents a share, from its earlier forecast of between 67 cents and 70 cents a share. There is genuine concern surrounding consumer spending over the rest of 2008.

Thomas Weisel Partners upgraded American Eagle from underweight to market weight, while raising the price target from $20 to $25. Analyst Liz Dunn said in her note to clients earlier this month that consumer spending could improve in the second half of this year.

I believe that American Eagle will not be severely impacted by a continued slowdown. While its range of apparel is wider than that offered by rivals like Abercrombie & Fitch (ANF) , its prices are lower as well.

Moreover, American Eagle has launched a new children's apparel brand called 77kids, targeting kids between 2 and 10. The brand is to be launched solely on the Internet later this year and stores will come next year. Jim Cramer said last week, "I like retail. I would buy AEO under $21 a share."

American Eagle is in the Fast Money's Balance Sheet Stock Plays on Stockpickr. This portfolio includes companies that are cash rich, have low debt and represent great plays against the backdrop of an economic downturn. It also includes Office Depot (ODP) , MDC Holdings (MDC) and Officemax (OMX) .

You can also see the list of investment funds that own American Eagle at Stockpickr. Al Frank Asset Management has recently raised its stake in the company. Managed by John Buckingham, this fund has five-year annualized returns of 21.07%. It also owns Transocean (RIG) , Dryships (DRYS) and Marathon Oil (MRP) .

American Eagle's shares are down 26% over the last year vs. a 2% decline in the S&P 500. The balance sheet is debt free and robust, and the company has been generating steady revenue growth, offering an ROE of 29.82%. I, again, am optimistic about the company being able to generate positive returns over the next 12 to 18 months. (On Stockpickr, you can see the rest of the insider trades and buybacks).

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At the time of publication, Raznick had no positions in the stocks mentioned, although positions may change at any time.

Jason Raznick is president of Easy Stock Alerts and has been involved with the capital markets for several years. He has worked for Merrill Lynch, Dynamis and Tricap Holdings, a joint venture with Fortress Investment Group. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Raznick appreciates your feedback; click here to send him an email.

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